The International Monetary Fund, for instance, has warned that global public debt has reached an alarming proportion to the point that it will hit $100 trillion at the end of 2024. This projection is ahead of the international monetary organization’s Fiscal Monitor report published in June on an annual basis, outlining fiscal problems the major world economies are to face namely, the United States and China.
Calculations made by the International Monetary Fund observe that excluding the debt of the US and China in global computation resulted in the reduction of the public debt-to-GDP ratio by around 20%. This proves that those two countries indeed seriously influence the debt metrics on the world scale. According to Director of Fiscal Affairs at the International Monetary Fund, Vitor Gaspar, the current valuation of public debt is probably optimistic because governments tend to downplay their fiscal obligations.
The paper identifies a fiscal policy trilemma with which many governments struggle: the need to expand spending in the pursuit of growth and security but in the face of public opposition to tax increases and constraints on sustainable debt levels. Poor countries, particularly in sub-Saharan Africa, are most heavily burdened, as they struggle to raise enough tax revenue while undertaking needed social programs in the battle against poverty.
In addition, unsustainable debt may trigger market sell-offs in a country if the investors begin to feel that a country’s fiscal health does not look safe enough. The risk, however is not limited to emerging markets; currently, the U.S. and China, among others, also face risks of increasing debt servicing cost as investor starts getting worried about overall fiscal sustainability in general.
The U.S. Treasury Department just reported a budget deficit of $1.833 trillion, the highest outside the pandemic period. Growing legislative gridlock continues to raise tensions for government funding, also casting a shroud of doubt over the nation’s fiscal future.
Chinese local government expenditure has largely been a major factor in contributing to the country’s increasing fiscal deficit. However, for 2023, its decline will follow with decreased tax revenues brought about by tax relief extensions.
Policymakers are now faced with some very tough decisions between balancing fiscal responsibility and the urgent needs of their populations at a time that international public debt levels are skyrocketing to unprecedented levels. Such projections from the IMF make it a clarion call for governments to address the structural problems feeding into the surge in debt at such a time when economies face uncertainty.
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